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Checking in on the Proposed White Collar Overtime Rule Changes

Content: The proposed changes to the white collar exemptions of the Fair Labor Standards Act (FLSA) are looming large in the minds of many employers. These rules, proposed in June 2015 and expected to be finalized sometime in 2016, would more than double the salary threshold for workers otherwise eligible for a white collar exemption from minimum wage and overtime requirements under the FLSA.

What do we know and what are we still waiting to find out about?

We know that if the final rules adopt the salary level of the proposed rules (of about $50,440 per year), employers could lose the exemption from the FLSA wage requirements for almost five million currently exempt workers who would then be eligible for overtime wages. We also know that, if the final rules follow the proposed rules, the $50,440 salary level is not the only increase that will be seen.

The rules propose having the white collar salary level (and the highly compensated employee compensation rate, which the rules also address) automatically increase each year. These would be tied either to a cost of living index or to a set percentile of earnings across all salaried workers.

We also now know more about the objections to this proposed rule. There were over 250,000 comments submitted during the 90-day comment period. Last time changes to these rules were proposed, in 2003, there were approximately 75,000 comments. Clearly, this is something that people are talking about.

Concerns and complaints about the proposed rules were varied, but several topics came up again and again. Many negative comments concerned the size of the increase. Business owners said the proposed increase would be a significant hardship. Some suggested choosing a salary level somewhere between the current and proposed levels. Others recommended a gradual increase instead of the sudden jump.

Business owners also worried that the employees themselves might not appreciate the changes. They fear a drop in morale if currently exempt workers are reclassified as non-exempt under the new rules. These workers might not want to track time, and they might feel their work is less valuable if they are paid on an hourly basis.

Another common complaint about the proposed salary level was that it does not take location or industry into account. Business owners located in regions with lower costs of living pointed out that this large increase would hit them much harder than it would those operating in areas with higher costs of living.

Commenters in favor pointed out that the new rules will significantly reduce the misclassification and exploitation of low wage workers, and will bring the salary requirement back in line with the intentions of the FLSA exemptions, which are to allow employers to pay workers in prestigious and well-paid positions on a salary basis, while ensuring that lower paid and less educated workers have a right to a limited workweek.

At this point, we know what the proposal is and we know what people who commented think about it. There are, however, still quite a number of question marks around these changes.

We do not know exactly what the final rules will look like. The Department of Labor (DOL) is required to review the comments. It can respond to them, although it is not required to do so. It’s also not required to make any changes to the proposed rules because of the comments. In fact, the DOL could issue final rules that are identical to the proposed rules. Most commentators, though, seem to think that some changes will be made. Many think that the salary level of $50,440 will be reduced. However, given that the intent of these changes to make more workers eligible for overtime, it is unlikely that the number will be reduced as much as many business owners would like.

We also do not know the timeline for when the final rules will be issued or when they will go into effect. In 2004, the last time these rules were updated, a little over a year passed between the proposed rules and the final rules, and the final rules went into effect about four months after they were published. If the timing remains the same this time around, we expect to see the final rules in July 2016 with an effective date of sometime in November 2016.

There has been some speculation that the DOL would try to move a bit more quickly this time in order to get the rules in place well ahead of the upcoming presidential election and the end of President Obama’s term. Some commentators have even predicted that we might see the final rules as early as February 2016. Recently, however, at a panel discussion at an American Bar Association conference, the Solicitor of Labor said that the DOL did not expect to issue final rules until “late 2016.” Nevertheless, the DOL could decide to act sooner.

So, what should business owners be doing to prepare for these changes? Here are our recommendations:

Determine which of your exempt employees could be affected.

Consider for each employee whether it would be better (both in terms of morale and finances) to reclassify them as non-exempt or to raise their salary to the new exempt level.

If you expect a lot of your employees will become non-exempt, consider hiring additional workers to minimize incurred overtime.

Decide how you want to communicate these changes to your employees to minimize any drop in morale.

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